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    After a year of pronounced market caution as the debt crisis grew more evident in Europe and the US at one stage looked like it would be brought to its knees by its debt burden, the geographic uncertainty and mounting tensions in oil producing countries is seen as holding the oil price to ransom.

    The annual average OPEC Basket Reference Price this year will be US$107.45 per barrel compared with $77.45 in 2010, $61.06 in 2009 and $94.45 in 2008 and the outlook for 2012 suggests prices could double – even triple – in the year ahead.

    It is hard to believe that the price of crude oil was just $3 a barrel in 50 years ago in 1972 and at the end of the end of the 1990s the nominal crude oil price was still less than US$20 per barrel. Its then took another half a decade until it climbed to US$50.

    Nonetheless, right before the onset of the financial crisis, it peaked at almost US$150 and has spent most of 2011 hovering close to $100.

    Prices are essentially driven by geopolitical risk premiums and it is precisely because the actions of nations cannot be predicted that so many are expecting 2012 to usher in far higher oil prices.

    Just last week the commodity, once called black gold, looked poised to react to escalating tensions between the US and Iran.

    Iran, the world's fifth largest oil producer, threatened to choke off oil flows through the Strait of Hormuz as it looks for ways to punish the west for its proposed sanctions on the country.

    Iran is facing sanctions from the US and Europe, which are targeting the halting of Iran's controversial nuclear activities.

    The European Union, which last month expanded a sanctions blacklist against Iranian firms to 141 firms and 39 individuals, said it was mulling an oil embargo as it stepped up its campaign to get Iran to abandon its atomic ambitions.

    The 27-nation group is now expected to decide whether to go ahead with an oil embargo in this month (January).

    At the same time, the US Congress has been considering legislation targeting Iran's central bank - the nexus for receiving payment for oil exports.

    This came on top of other prohibitions announcements in November when the US, Canada and Britain slapped sanctions on Iran's financial, petrochemical and energy sectors.

    According to the Tehran Times, it has been recommended that in the case of sanctioning of Iranian Central Bank or a likely embargo on the purchase of Iranian crude oil, “Iran without any hesitation should react by blocking the Strait of Hormuz against the enemies”.

    The daily said that it was “understandable” that such a threat would make sense to an economy that is 80% reliant on oil exports but because of the seaway’s unique strategic advantages, the blocking of the Strait would certainly affect the world economy and politics.

    Threatening to backfire on not only the US and Europe but all other nations dependent on oil imports is the immediate impact such a battle would have on the oil price.

    Already Iran has warned that prices could surge to $250 a barrel level if there were any moves to ban its exports.

    Those who think SA is exempt from the heated threats would be very wrong.

    Econometrix director and senior economist Tony Twine said at the November Monetary Policy Forum in Pretoria that “the biggest inflation threat in the foreseeable future was that an irate Iranian government could close the Strait of Hormuz with a few submarines, which would push the oil price above $300 per barrel”.

    The SA Reserve Bank said it sees inflationary pressures easing by the second half of next year, particularly food prices. But if oil continues to rise, fuel and food costs will come under upward pressure.

    And as Twine point out: “Inflation will be a factor that depresses real growth.”